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Otelco Reports Third Quarter 2012 Results

“In order to continue to conserve cash, the board of directors has exercised its contractual right under the indenture governing our senior subordinated notes to defer interest on the senior subordinated notes for fourth quarter 2012. Under the indenture, the board is permitted to defer interest on up to four occasions with respect to up to two quarters per occasion before resuming interest payments, including interest on the deferred interest. The deferral of the interest for fourth quarter will conserve $3.5 million cash.

“While we are pursuing the balance sheet restructuring options, our operations teams continue to introduce new products, enhance existing services and focus on cost reductions and cash conservation,” continued Weaver. “In Alabama, our new offering of security services to residential and business customers has been well received. In addition, the fiber installation is complete to all but two of the county school systems in Blount County (AL) in the ten school contract. We sold our first Hosted PBX system in Western Massachusetts and continue to grow this product in New Hampshire and Maine. Our Missouri operations have plans for two more locations to introduce our wireless Internet offering. Creative negotiations and transport will further reduce our long distance costs for the service we provide our customers.

“We will continue to review our operations and cost structure, making every effort to improve efficiency and further reduce costs,” concluded Weaver. “Modest price increases have been implemented or are planned where allowed by regulatory agencies, existing contractual obligations and market conditions.”
       
Third Quarter 2012 Financial Summary
(Dollars in thousands, except per share amounts)
(Unaudited)
 
Three Months Ended September 30, Change
    2011   2012   Amount   Percent
Revenues $ 25,303 $ 24,428 $ (875 ) (3.5 ) %
Operating income $ 6,124 $ 6,487 $ 363 5.9 %
Interest expense $ (6,222 ) $ (5,674 ) $ 548 (8.8 ) %
Net income available to stockholders $ 885 $ 316 $ (569 ) (64.3 ) %
Basic net income per share $ 0.07 $ 0.02 $ (0.05 ) (71.4 ) %
 
Adjusted EBITDA (a) $ 11,094 $ 11,369 $ 275 2.5 %
Capital expenditures $ 2,097 $ 851 $ (1,246 ) (59.4 ) %
 
Nine Months Ended September 30, Change
    2011   2012   Amount   Percent  
Revenues $ 76,196 $ 74,516 $ (1,680 ) (2.2 ) %
Operating income (loss) $ 18,771 $ (134,957 ) $ (153,728 ) *
Interest expense $ (18,592 ) $ (17,162 ) $ (1,430 ) (7.7 ) %
Net income (loss) available to stockholders $ 2,173 $ (126,876 ) $ (129,049 ) *
Basic net income (loss) per share $ 0.16 $ (9.60 ) $ (9.76 ) *
 
Adjusted EBITDA (a) $ 34,393 $ 33,659 $ (734 ) (2.1 ) %
Capital expenditures $ 8,448 $ 3,396 $ (5,052 ) (59.8 ) %
 
* Not a meaningful calculation
 

Reconciliation of Adjusted EBITDA (a) to Net Income (Loss)
Three Months Ended September 30, Nine Months Ended September 30,
    2011   2012   2011   2012
Net income (loss) $ 885 $ 316 $ 2,173 $ (126,876 )
Add: Depreciation 2,922 2,467 8,751 7,942
Interest expense - net of premium 5,880 5,332 17,566 16,136
Interest expense - amortize loan cost 342 342 1,026 1,026
Income tax expense (benefit) (323 ) 498 36 (24,690 )
Change in fair value of derivatives (654 ) - (1,641 ) (241 )
Loan fees 19 19 57 57
Amortization - intangibles 2,023 2,147 6,425 7,076
Goodwill impairment - (344 ) - 143,654
Impairment of long-lived assets - - - 8,622
Restructuring expense   -     592     -     953  
Adjusted EBITDA $ 11,094   $ 11,369   $ 34,393   $ 33,659  
 

(a) Adjusted EBITDA is defined as consolidated net income (loss) plus interest expense, depreciation and amortization, income taxes and certain non-recurring fees, expenses or charges and other non-cash charges reducing consolidated net income. Adjusted EBITDA is not a measure calculated in accordance with generally acceptable accounting principles (GAAP). While providing useful information, Adjusted EBITDA should not be considered in isolation or as a substitute for consolidated statement of operations data prepared in accordance with GAAP. The Company believes Adjusted EBITDA is useful as a tool to analyze the Company on the basis of operating performance and leverage. The definition of Adjusted EBITDA corresponds to the definition of Adjusted EBITDA in the indenture governing the Company’s senior subordinated notes and its credit facility and certain of the covenants contained therein. The Company’s presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies.
 
 

Otelco Inc. - Key Operating Statistics ⁽²⁾
(Unaudited)             Quarterly
% Change
December 31, March 31, June 30, September 30, from
2010 2011 2012 2012 2012 June 30, 2012
Otelco access line equivalents (1) 99,639 102,378 101,885 101,184 100,195 (1.0 ) %
 
RLEC and other services:
Voice access lines 45,461 46,202 45,200 44,546 43,816 (1.6 ) %
Data access lines   20,852   22,904   23,105   23,156   22,977 (0.8 ) %
Access line equivalents (1) 66,313 69,106 68,305 67,702 66,793 (1.3 ) %
Cable television customers 4,227 4,201 4,216 4,163 4,181 0.4 %
Satellite television customers 125 226 229 231 232 0.4 %
Additional internet customers 6,975 5,414 5,159 4,896 4,690 (4.2 ) %
RLEC dial-up 393 301 273 248 211 (14.9 ) %
Other dial-up 4,300 2,797 2,501 2,266 2,083 (8.1 ) %
Other data lines 2,282 2,316 2,385 2,382 2,396 0.6 %
 
CLEC:
Voice access lines 29,944 30,189 30,476 30,355 30,341 (0.0 ) %
Data access lines   3,382   3,082   3,104   3,127   3,061 (2.1 ) %
Access line equivalents (1) 33,326 33,271 33,580 33,482 33,402 (0.2 ) %
Wholesale network connections (3) 149,043 157,144 159,560 161,766 162,700 0.6 %
 
For the Years Ended For the Three Months Ended
December 31, March 31, June 30, September 30,
2010 2011 2012 2012 2012
Total Revenues (in millions): $ 104.4 $ 101.8 $ 25.4 $ 24.7 $ 24.4
RLEC $ 58.4 $ 57.4 $ 14.2 $ 14.1 $ 13.6
CLEC $ 46.0 $ 44.4 $ 11.2 $ 10.6 $ 10.8
 

(1) We define access line equivalents as voice access lines and data access lines (including cable modems, digital subscriber lines, and dedicated data access trunks).

(2) We acquired STC on October 14, 2011. At December 31, 2011, STC had 3,309 voice access lines and 1,672 data access lines, or 4,981 access line equivalents, and 55 dial-up internet customers which are included in the Key Operating Statistics.

(3) Time Warner Cable is the source for approximately 98% of wholesale network connections.
 

FINANCIAL DISCUSSION FOR THIRD QUARTER 2012:

All financial information includes the acquisition of Shoreham Telephone Company Inc. (“Shoreham”) on and as of October 14, 2011.

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